Provincial vs. Superior Court Jurisdiction over NFP Corporations

In Keck v. Balgonie Early Learning Centre Inc. (released March 2018), Justice Zarzeczny of the Saskatchewan Court of Queen's Bench found that a non-profit corporation justifiably terminated a services agreement with a member. The case raises the larger question: should provincial courts have jurisdiction to hear matters involving not-for-profit corporations?

1. Facts

Darren and Sandra Keck were parents of an infant, who they enrolled in a licensed early learning and daycare centre located in Balgonie Saskatchewan and owned and operated by Balgonie Early Learning Centre Inc. (the "Centre"), a non-profit corporation incorporated under the Saskatchewan Non-profit Corporations Act, 1995. They also became members of the corporation and, in due course, Mr. Keck also became a director.

The parents and the corporation entered into a written agreement for child care services with the corporation. The agreement provided that, in exchange for a monthly fee, their child would be provided with daycare services.

As a result of Mr. Keck's behaviour, which was found to be in violation of the code of conduct of parents and members, the directors of the Centre resolved to terminate the contract between the Centre and the Kecks.

The Kecks brought two separate actions against the Centre and its directors. One action was brought in the Provincial Court for breach of contract. However, the Provincial Court ruled in favour of the Centre. A summary of this decision is dealt with a separate blog article, entitled "Jurisdiction of Provincial Courts over Non-Profit Corporations". The second action was brought in the Saskatchewan Court of Queen's Bench. The decision in this latter action is the subject matter of this blog article.

2. Rulings

(a) Termination of Service Agreement

Judge Demong of the Saskatchewan Provincial Court had held that he had jurisdiction over a simple breach of contract claim. Under the circumstances, however, he found that compliance with the code of conduct was an essential term of the contract for child care services.

In the Saskatchewan Court of Queen's Bench, Justice Zarzeczny agreed that Mr. Keck's behaviour constituted a breach of the Centre's Code of Conduct on two occasions, the first resulting in a warning and the second in rightful termination of the service agreement.

However, the Provincial Court correctly concluded that the issues of membership in the Centre and the Centre's alleged breach of the Saskatchewan Act were within the exclusive jurisdiction of the Court of Queen's Bench to determine.

(b) Termination as Members

The service agreement between the parents and the Centre was foundational to the status of the parents as members of the Centre and Mr. Keck's status as a director. To be eligible for membership, the parent's child must be enrolled in the Centre. That ended once the service agreement was terminated by the Centre. The Kecks lost their eligibility as members of the Centre under its by-laws. Mr. Keck's two-year term as a director expired and he did not seek re-election.

(c) Oppression

Given that the services agreement was legally and properly terminated, the Kecks were no longer eligible for membership in the Centre and their memberships terminated. Nothing in the factual and legal circumstances constituted oppression under the Saskatchewan Act.

3. Key Observations

Like the Saskatchewan Act, the Canada Not-for-profit Corporations Act gives exclusive original jurisdiction to the highest level of trial court in each province (or territory) to hear matters under the CNCA. In this respect, the CNCA follows the path long-established by the Canada Business Corporations Act for relief involving federal for-profit business corporations.

The question worth asking is: Should the CNCA continue to slavishly follow the CBCA in giving exclusive jurisdiction to the highest level of trial court in each province and territory? Or, rather, should the jurisdiction be divided between the superior court and the provincial court?

The difference is material. Generally, litigation in the superior courts takes much longer and costs much more than litigation before provincial courts. Partly this is a function of the difference in amounts at stake, and is also a result of the significantly more streamlined pre-trial discovery process in the provincial courts.

By any financial measure (revenues, net income or assets), most not-for-profit corporations tend to be smaller than for-profit corporations. Not-for-profit corporations ordinarily do not have much money to spend on litigation.

As the parallel proceedings in Keck v. Balgonie Early Learning Centre show, allowing not-for-profit corporations and their members access to provincial courts rather than superior courts may enhance access to justice for an overwhelming proportion of these corporations and their members. Currently, the cost of seeking justice in the superior courts may be a level of justice that is so expensive as to deny justice for all but a few.